PRINT THIS PAGE Deal seekers down under25/04/2007. Source: Asia Private Equity Review (APER). 
The winds of buy-outs in Australia are becoming increasingly unpredictable, says APER. The respective investors interested in Flight Centre and Veda Advantage appeared to be on shaky ground to clinch the deals at first, but their fortunes soon changed. Such developments underscore the resourcefulness of deal makers in Australia, one of the most competitive buy-out markets in Asia. Against the Odds
Despite having garnered the support of Flight Centre’s founding shareholders, Pacific Equity Partners suffered an initial setback to privatise the publicly-listed travel agent following the buyer’s failure to secure the requisite 75% of the total number of shares in late February. One of the stumbling blocks was Lazard Asset Management, the fourth largest shareholder in Flight Centre, which decided not to accept Pacific Equity Partners’ A$17.20 (US$13.76) per share offer.
Within a month, Flight Centre appeared on Australia’s deal log again. Under the revised proposal, Flight Centre would transfer all of its operational assets to a leveraged joint venture which would have an enterprise value of about A1.4 billion or US$1.12 billion. The revised value represents A$15 per share, 14.7% lower than that proposed earlier. In this new joint venture, Flight Centre will retain a 67% economic interest while the private equity firm will take up the remaining 33%.
When the shares are transferred to the private equity firm’s hands, it will be an accolade to Pacific Equity Partners’ ingenuity in crafting a new structure that would remove the deal blockage.
Pacific Equity Partners’ deal fortune extends to Veda Advantage, previously known as BayCorp Advantage. In January, Pacific Equity Partners and Merrill Lynch Global Private Equity expressed their interest to assume 100% control of Veda Advantage. In late March, Veda Advantage issued a statement warning investors not to draw “any inference about whether any definitive proposal will eventuate”, dampening hopes that a deal could be clinched. But the tides changed when Allco Equity Partners, a 17.3% equity shareholder in Veda Advantage, endorsed the offer from the financial investors. Both parties will deploy A$814 million in assuming full control of Veda Advantage, one of Australia’s leading provider of business intelligence services and solutions.
Deals Scored
After more than four months, the curtain fell on the buyout of Rebel Sport Ltd, an Australia-based sporting equipment, apparel and footwear company. In mid March, Rebel Sport announced that its shareholders voted in favour of Archer Capital to acquire all of its issued shares at a purchase price of A$4.60 (US$3.71) per share. The offer price was a modest premium to Rebel Sport’ A$4.57 per share closing price on 15th March, the day when the target company confirmed Archer Capital’s success in assuming full control of the company. The entire transaction represented a deployment of A$308.70 million, or US$244.67 million.
The buyout and privatisation was, however, a narrow win for Archer Capital, with 76.69% of the shareholders supporting the buy-out. The transaction values the target company at A$369 million.
Australia’s retailers have become a favourite takeover target for buyout investors. In early 2006, TPG Newbridge committed just over US$1.0 billion in assuming full control of Myer stores, as well as its two prime properties in Melbourne. Months later, Affinity Equity Partners launched an initial hostile takeover of Colorado Ltd. The two parties finally settled their differences with the buyout firm successfully enlisting Colorado as one of its portfolio companies in Australia (fig. 10).
Another firm based outside of Australia that has successfully taken control of an Australia-based company is the Hong Kong-based Techpacific Capital Ltd. Listed on the second board of the Hong Kong Stock Exchange, Techpacific Capital has been tenacious in its efforts to become the new owner of Orchard Petroleum Ltd.. On 15th March, five months since its subsidiary Crosby Capital Partners first expressed its interest to purchase all of the petroleum company’s outstanding shares, Crosby Capital Partners succeeded in attaining a 97.61% interest in Orchard Petroleum for an aggregate A$165.65 million (US$129.4 million). The entire buyout was completed via a series of transactions.
At the end of September last year, through open market purchases of Orchard Petroleum’s shares, Crosby Capital Partners held an 11% equity shareholder in the target company. In early October, Crosby Capital Partners made a cash takeover offer for Orchard Petroleum’s shares, at A$0.68 apiece. The then proposal valued Orchard Petroleum at approximately A$147.26 million. A month later, Crosby Capital Partners raised its offer price by 19.1%, to A$0.81 per share, revising the value of Orchard Petroleum to A$175 million. The adjusted offer price was a 39.7% premium to the closing price of A$0.58 on 29th September, the day before Techpacific Capital announced its intention to take over the target company. The offer received a favourable response from Orchard Petroleum’s board.
Crosby Capital Partners is 81%-owned by Techpacific Capital Ltd. The latter is a vehicle for direct investments, as well as a venture capital investment management firm.
In the meantime, CCMP Capital Asia’s takeover of Repco Corp. has moved forward following shareholders’ approval to accept the buyout firm’s offer. The auto parts company will cease to be have a public address on the Australian bourse in mid April after having received A$335.70 million in capital injection from the Hong Kong-based buyout firm.
Another investor group outside of Australia that also toasts to the success in taking over Australian assets is Francisco Partners. Its general offer of Mincom’s shares, a business solutions provider to asset intensive industries, concluded in early April following the private equity firm’s commitment to deploy an approximated A$315 million or US$249.75 million in assuming full control of Mincom.
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In the meantime, the privatisation of Qantas Airways, led by a consortium of investors including Macquarie Bank and Texas Pacific Group, is drawing intense attention as one major investor, which holds a 4% equity stake in Qantas, has confirmed its decision not to participate in the general offer. The success of this landmark buyout hinges on the financial investors’ ability to buy up 90% of Qantas’ shares.
Since late 2005, Australia has replaced South Korea and Japan in becoming the most fertile market for buyout deals. In 2006, Down Under took the crown as the most favoured investment destination as deal values reached a record high of US$14.1 billion. In the first three months of the year, Australia and its neighbour, New Zealand clocked up a towering transaction aggregate of US$4.62 billion (fig. 11).
With both the US$9.98 billion takeover of Qantas waiting to be consummated, and the buyout of Coles Group’s assets that is expected to be a US$15 billion deal, more buyout deal winners in Australia and New Zealand are expected to emerge.
Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com
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